Offshore News Digest for Week of October 28, 2002

IRS PROPOSAL TO REPORT INTEREST AND INVESTMENT INCOME PAID TO NONRESIDENT FOREIGNERS

Center for Freedom and Prosperity explains its opposition here and here.

Register your objection online with the IRS here.

THE GUARDIAN SMEARS LIECHTENSTEIN

LONDON: A lengthy rehash/mishmash of old stories with a new terrorism twist - the liberal UK newspaper does a hatchet job on the Principality. Liechtenstein stopped allowing anonymous bank account customers. New “know your customer” rules have resulted in a 9% drop in the deposits of the bank owned by the royal family. But it sounds like anything short of complete political subjugation to the major EU states will not satisfy the statist torch bearers of the fourth estate.

SWISS ANTI-MONEY LAUNDERING LAWS EFFECTIVE

BERN: Four years after new laws allowed them to clamp down on attempts to launder the proceeds of crime through secretive Swiss banks, Swiss officials are proclaiming that they are among the best in the world at tackling money laundering. In 1998, new legislation forced banks to identify clients or financial beneficiaries of accounts, and to report suspicious transactions to authorities. It took over from voluntary self-regulation by banks.

SWISS COURT ISRAELI BUSINESS

JERUSALEM: Swiss official welcomes Israeli companies.

BRITISH ECONOMY CHOKED WITH UNNEEDED RULES

LONDON: OECD report says business is choked by red tape.

JERSEY SURRENDERS TO U.S. IRS

Formal signing of US tax information exchange agreement nears.

INTERNATIONAL HERALD TRIBUNE’S UNCERTAIN FUTURE

PARIS: Will the paper become the European edition of the New York Times? Does anyone care?

BERMUDA and/or MONACO BORING?

Bank of Bermuda listed on the NASDAQ.

DID WASHINGTON SNIPER SELL PASSPORTS?

ST. JOHNS, Antigua: Shooter allegedly sold ANTIGUA passports.

PHILIPPINES HAS ITS PROBLEMS

MANILA: While President Gloria Macapagal-Arroyo has battled terrorists, economic problems have festered. Unemployment today stands at 11.2%, 44% of Filipinos live on less than $2 a day, and a five-year slide in foreign direct investment continues. Most business execs with experience in the Philippines are not packing their bags yet. Foreigners have been living under the threat of kidnappings and bombings for years.

LABUAN ALREADY REACHING TAX HAVEN STATUS

Thus far, there are 49 offshore banking institutions operating in Labuan, including 17 of the world’s largest banking groups; 18 trust companies; 105 insurance and insurance-related companies; 22 leasing companies and 35 fund managers. A total of 3,500 companies have been incorporated in Labuan. According to a recent report, Islamic finance represents about 8% of bank deposits in the country and about 45% of the country’s total debt issues in 2001.

U.S. RICH PAY MOST INCOME TAXES

Top 1% of US taxpayers pay 37.4% of all income taxes. Top 5% pay more than half of such taxes; top 10% pay over 2/3 of all taxes.

OFFSHORE FUNDS DOING WELL

Because the U.S. Securities & Exchange Commission does not regulate these funds, offshore-fund companies are not allowed to market them to U.S. residents. The performance of offshore funds, however, is a good barometer of global market trends. All the top 20 funds on BusinessWeek’s list posted double-digit gains, while the benchmark MSCI World Index was down 28.4%. Plenty of thriving stocks offshore even as US and Europe slump. Somewhat interesting survey of economies and recommendations/touts by analysts and fund managers.

Strategic Financial Solutions, LLC, creator of asset allocation and investment analysis software PerTrac™ 2000, and HedgeFund.net, an Internet source for hedge fund performance data and news, have announced the launch of PerTrac™ Online, which allows a user to conduct advanced searches and analysis on HedgeFund.net’s universe of over 2,300 hedge funds.

BUSH ADMINISTRATION MAY PROPOSE TAX REFORMS

Scrap the corporate income tax among possible ideas.

RICHEST CHINESE IN TAX TROUBLE

BEIJING: Forbes list gets China’s top earners in tax trouble.

BECKER MAY BE IN MORE TAX TROUBLE

MUNICH: German tax collectors won’t leave him alone.

ELECTRONIC COIN TRADING BEGINS, CREATES NEW MARKET

The Professional Coin Grading Service (PCGS) has begun tracking the coin trade electronically in much the same way that Standard & Poor’s tracks the stock market. The firm’s CU3000 index, which can be found on its Web site, pcgs.com, covers 3,000 American coins and incorporates within it nine subindexes. The Web site has 12-month highs and lows, as well as 1-, 3- and 10-year charts for each. Grading and daily price guides have “certainly made the coin market more liquid”, says a stock analyst. However, the Web site of Professional Coin Grading advises: “The coin market is volatile and thinly capitalized.” Be aware of substantial bid-asked spreads, and don’t get carried away bidding for a coin on eBay.

NIGERIAN SCAM LURES MORE SUCKERS

There seems to be an unending supply of them. An Oregonian woman lost nearly everything she had to get together the $70,000+ she would give to African strangers who promised to make her wickedly rich. The fraud is called the “419” scheme. The writer claims to be from Africa, most often from Nigeria, Zimbabwe or South Africa, and is desperate to move large amounts of money out of the country and into a foreign bank. The marks are told they can keep a share of the money in exchange for their help, usually around a fourth of the total, making for a multimillion-dollar payoff.

Nearly everyone dismisses the 419 proposal as a sham, but not absolutely everyone. “In most of these things, you’re going to be encouraged to travel overseas to complete the transaction,” said Brian Marr, special agent with the U.S. Secret Service in Washington, D.C. “That’s when the trouble is going to start.” A Norwegian millionaire who did so ended up dead.

SIX WEEKS IN AUTUMN

A year ago, as the US reeled from attack, a battle was joined for America’s future. Not in Afghanistan, but in Washington, DC. The attacks on the World Trade Center and Pentagon didn’t just set off a national wave of mourning and ire. They reignited and reshaped a smoldering debate over the proper use of government power to peer into the lives of ordinary people. In an age of high-tech terror, what is the proper balance between national security and the privacy of millions of Americans? For six weeks last fall, behind a veneer of national solidarity and bipartisanship, Washington leaders engaged in pitched, closed-door arguments over how much new power the government should have in the name of national security.

The Cato Institute, ACLU worry liberties are compromised in name of anti-terrorism. Patriot Act criticized as improperly researched, hastily passed legislation. Too much power in the executive branch. Rather than limiting the law to terrorism, lawmakers extended provisions to ordinary criminal matters. The ACLU is very concerned about 80 people whose charges are unknown and have been detained for a year. The Japanese-American internment during World War II, the Joseph McCarthy hearings, abuses by J. Edgar Hoover cited as previous overreactions to war or perceived security threats.

Human chip implants now on sale. Applied Digital Solutions has coined the tagline “Get Chipped” to market its product, VeriChip. The rice-size device costs $200. Those implanted must also pay for the doctor’s injection fee and a monthly $10 database maintenance charge. What a deal!

WORLDWIDE PRESS FREEDOM INDEX RELEASED

REQUIEM FOR THE LORDS?

LONDON: Labour pushes plan to kill traditional House of Lords.

UNITED EUROPE TEETHING TROUBLES

Not the best of times for the EU.

Inside Brussels: Who cares about the EU?

Plan for EU constitution unveiled amid row.

United States of Europe?

INSIDE THE BAHAMAS

NASSAU: The islands are paying a high price for the radical reforming of the offshore financial sector. The sector, the second most important contributor to the economy after tourism, is shrinking. Some wonder whether the price paid to effect the transformation from secretive island banking haven to global financial player is too high. “We complied, passed our laws and got where we are,” said the finance minister of the Bahamas. “But our respect for the OECD fell through the floor.” The local labor market is ill-equipped for global competition. “I think we’ve gotten out of the state of shock. We’re recuperating from injuries,” said the head of the largest Bahamas-based securities firm. “Where we end up is anyone’s guess.”

Crime seen as major threat to Bahamas, Caribbean tourism.

CAYMANS LEADER UNDERSCORES “LEVEL PLAYING FIELD”

GEORGE TOWN, C.I. Islands leader demands OECD end unreasonable demands on tax havens and treat all nations, big and small, equally.

TAX HAVENS PROVIDE REFUGE FOR THE OPPRESSED

If the flight of people from financially oppressive governments is equivalent to similar escapes from political oppressive regimes, then crackdowns on tax havens take on a new and troubling light. The EU’s Savings Tax Directive and the IRS’s pressure on banks in the Caribbean start looking like the old Eastern Bloc’s demands that West Germany surrender escapees to the authorities in East Berlin. Rather than reduce their demands on their subjects, as the rulers of Eastern Europe were eventually forced to do, politicians in the U.S. and around the world want to create a worldwide financial regime that would leave no place to hide from avaricious tax collectors. But throughout history, people have proven exceedingly talented at resisting excessive taxation.

STUDY EXPOSES TAX COSTS OF U.S. CORPORATE INVERSIONS

Capital gains taxes on shareholders result from stock value increases.

New US Treasury rules will force notice to corporate shareholders of capital gains taxes after offshore corporate inversion.

WHAT DOES BRAZIL VOTE MEAN FOR OTHERS?

RIO DE JANEIRO: Leftist Luiz Inacio Lula da Silva wins a convincing victory in Brazil’s presidential election. Now what?

WORLD MIGRATION DOUBLES SINCE 1975

175 million people, 3% of total world population, live in nations where they were not born, twice as many as in 1975.

ANTIGUA INVESTIGATES DC SNIPER SUSPECTS

ST. JOHN’S: Were forged passports a source of sniper income?

BANKERS’ ALMANAC, LEXISNEXIS ALLY TO OFFER SUPERSPOOK CAPABILITIES

LexisNexis and The Bankers’ Almanac today announced an alliance to include BANKERSalmanac.com as part of the LexisNexis Anti-Money Laundering Solutions web portal, merging the LexisNexis tools with one of the industry standard resources for data about the structure of banks, locations, branches and their correspondent banking relationships. LexisNexis’s site tools incorporate technology that scours over 1.6 billion public records and quickly locates and associates links between people, businesses, assets, and locations that would normally take hours or days to gather and cross-reference.

SMALL STOCK BROKERS HIT BY U.S.A. PATRIOT ACT

Anti-money laundering rules on brokers’ minds.

U.S VENTURE CAPITAL SCARCE

Signs of a crunch in America’s markets for credit.

THE VICE FUND: UNREPENTANT INVESTING

New mutual fund buys “sin” stocks from four industries: alcohol, tobacco, gambling and defense.

AMERICA’S RICHEST POLITICIANS

Forbes names names. Two Rockefellers, Bloomberg, Kerry in the top ten. Interesting fact: G.W. Bush the first president with an MBA.

U.S. ESTATE TAX CHANGES REQUIRE NEW WILL, MORE ATTORNEY TIME

For those wealthy enough to have to worry about the estate tax, the rules now are more complicated than ever. Congress wanted to be able to say it voted against the “death tax”, but could not bring itself to extending a permanent multibillion-dollar break for the most affluent 2% of families - and thus created an estate-tax exemption that will change five times between now and 2011. Consider your gift-giving strategy.

IRISH GOVERNMENT’S TOTALITARIAN PLANS

Cradle to grave personal number for every citizen proposed.

VERICHIP: THE MARK OF THE BEAST

“Get chipped” is the slogan of the VeriChip, the world’s first human ID implant. Now how long before doctors are counseling patients that if they really love their newborns, they’ll implant them?

SNIPERS, TERROR AND GUN CONTROL

Some thoughts from US Representative Ron Paul, MD. No matter how many police or federal agents we put on the streets, a determined individual or group can still cause great harm. The undeniable truth is that armed citizens are safer than disarmed citizens. We can’t know that armed citizens would have prevented any of the shootings or brought the sniper to justice more quickly. Yet it’s hard to imagine the sniper choosing Texas or another well-armed southern state to commit his crimes. Any criminal operating in the areas around Washington DC – all bastions of anti-gun sentiment – can reasonably assume that his victims will not shoot back.

F.A.T.F. DOUBLE STANDARDS

PARIS: OECD’s Financial Action Task Force blacklists offshore havens, but allows lax enforcement in OECD nations, including the USA. While the FATF argues for tighter regulation of corporate vehicles worldwide, corporate domiciles such as Delaware and Nevada in the USA are excused from compliance with new rules to regulate service providers and track beneficial ownership. A 2000 report by the US’s General Accounting Office concluded that it is easy for foreign entities to hide their identities in Delaware shell corporations and launder money.

OECD meets in CAYMAN ISLANDS; “level playing field” at issue.

WHITE HOUSE CONFIRMS “NO” TO E.U. TAX DIRECTIVE

President Bush flatly opposes EU information sharing plan.

Not-so-super superstate EU: a bad thing gets bigger.

EU and SWISS meet once again to talk information exchange.

THE MORAL CASE IN FAVOR OF TAX HAVENS

HAMILTON: An offshore veteran and time long resident of Bermuda makes the case in an inspiring and cogent piece. Bermuda and other “tax havens” have terrible reputations with foreign government elites, who believe they have a right to tell the rest of the world how to live and what their tax laws should be. Clients of tax havens are said to be “dodging” their legitimate tax obligations to their countries of domicile, and consequently the rest of the citizenry is unfairly compelled to pay higher taxes. Yet public expenditures in almost every country (including Bermuda) have risen steadily, to over 50% of GDP in many countries. Most people understand that government bureaucracies (often employing about a fifth of the labor force) are not staffed by disinterested philosopher kings who somehow magically understand what the people want and impose taxes accordingly.

Once the government bite on individual incomes reaches about 30 percent a silent tax revolt takes place. People either stop working, cheat on their tax returns, or shift assets and commercial activities abroad to countries where the tax regime is less hostile to earnings and the preservation of capital. The most important function of the tax havens is to avoid wasteful and counterproductive governmental spending and allow entrepreneurs to invest and produce the goods and services that people actually want. In the end, the fundamental moral question is this: Do individuals have the right to enjoy the use of fruits of their labor, or is the State more important than the individual?

U.K. HITS IRISH SUBSIDIARIES WITH PENALTY TAX

LONDON: British Labour will double tax UK companies’ Irish profits.

MANX TAXES ON FOREIGN OWNERS PROPOSED

DOUGLAS, Isle of Man: Annual license fees suggested.

NEW RUSSIAN LAW IMPOSES FINANCIAL CONTROLS

MOSCOW: Draconian powers over bank accounts, financial activity.

NEWS FROM CANADA:

Taxpayers seek provincial tax havens to cut income taxes.

Attorney-client privilege safe pending BC high court decision.

New citizenship law makes changes in oath, procedures

Toronto warns travelers to US of race discrimination.

U.S TREASURY CONSIDERS NATIONAL V.A.T.

End the income tax and replace it with a value added tax? The issue could underpin Bush’s reelection campaign. “It is inherently difficult to measure income and becoming more so. There are just too many ways to minimize it,” says Pamela Olson, the deputy Treasury secretary for tax policy. The United States is the only developed Western nation without a value-added tax. European nations have been able to lower income tax rates - but not abolish income taxes - with a system of value-added taxes that have steadily risen since World War II.

“Be wary of the VAT tax option”, warns columnist. In practice the rate would have to be at least 5% to replace lost corporate income tax revenues and to cover the costs of starting the system. Another objection is that the tax would be regressive. In most countries, efforts to relieve the poor have involved exemptions in the VAT such as, usually, food and medical services. But there can be a large number of other goods and services exempted as well, which requires a further rate increase on non-exempt items. When European countries first imposed VATs in the 1960s, they mostly had rates around 10 percent. Today the average rate is about 18 percent. The overall tax burden in Europe has reached 42% of the GDP, compared with 30% in the United States. Before the VAT came along, U.S. and European tax burdens were comparable: 28% of GDP in Europe and 25% in the United States in 1965. Adopting a VAT or national sales tax would put the United States on a slippery slope toward European levels of taxation and government.

I.R.S. STILL WHINING ABOUT MORE MONEY

Speaking at a conference sponsored by the American Institute for CPAs on Tuesday, outgoing IRS Commissioner, Charles Rossotti warned again that the gap between the IRS’s resources and increasing demands on those resources cannot continue to widen forever. Says that the IRS actually has 10,000 fewer employees than 10 years ago, making it very difficult to deal with the large numbers of US citizens who choose not to file their tax returns.

AUSTRALIAN TAX OFFICE CHASES ULTRA RICH

Over A$1 billion collected from 24 taxpayers.

U.S. & OFFSHORE HEDGE FUNDS BEAT U.S. STOCK MARKET

Offshore hedge funds weathering US equity storm.

$7 MILLION, OFFSHORE SCAM ARTIST BOTH DISAPPEAR

Over 10,000 investors were bilked by Colorado con man Kenneth Roy Weare. An April 2001 SEC lawsuit said Weare’s “high-yield ventures” program, which touted annual return rates of 600%, was in fact a Ponzi scheme. The SEC has tracked $3.8 million of suspected investor funds to offshore bank accounts set up by Weare and his companies, but without Weare’s cooperation there is no guarantee that the now-frozen assets will be returned to investors anytime soon. “Anytime you are trying to enforce a judgment from the U.S. in another country, there are issues of whether or not the court in the foreign jurisdiction will recognize the judgment,” said SEC trial attourney.

SAUDI GOLD BUYING SOARS

JEDDAH, Saudi Arabia: Flight to gold, Iraqi war fears drive demand.

U.S.A. PATRIOT ACT TAKES AIM AT THE FINANCIAL SECTOR

Rules, regulations are involving the American financial sector in the spy business. “The $10,000 [transaction size] cutoff was more of the traditional way of looking at potential money-laundering cases,” says the research director at IDC. “Now, banks are looking at a person’s behavior as an account holder. They are asking ‘Is this a normal pattern? Does the pattern of money transfer send a message of unusualness?’” Cost efficiencies will probably move the industry towards automating the processes mandated by the Act.